What is the difference between an LLP (limited liability partnership) and an LLLP (limited liability limited partnership)? In Arizona, not much.
General Partners & Limited Partners
General partners are permitted to manage a partnership, while limited partners are not. In the past, the privilege of managing a partnership came at a substantial potential cost to general partners, unlimited joint and several liability for the debts of the partnership, all while limited partners were only liable up to the amount of their investments in the partnership.
Limiting Liability
LLP and LLLP statutes incorporate the aforementioned distinction between general and limited partners in terms of management, i.e. general partners are still permitted to manage LLPs and LLLPs, while limited partners are not. In contrast, however, LLP and LLLP statutes significantly modify the liability of general partners, i.e. general partners are not subject to unlimited joint and several liability for partnership debts.
Electing Limited Liability
General partnerships consist of one or more general partners and limited partnerships consist of one or more general partners and one or more limited partners.
While all states have enacted statutes that allow general partnerships to elect limited liability for their general partners, only some states have enacted statutes that allow limited partnerships to elect limited liability for their general partners.
A general partnership or a limited partnership that elects limited liability for its general partner(s) can be called an LLP while only a limited partnership that elects limited liability for its general partner(s) can be called an LLLP.
Arizona Law
Arizona’s LLP statutes (A.R.S. § 29-1101, et seq.) govern both LLPs and LLLPs and permit both general partnerships and limited partnerships to elect limited liability for their general partner(s).
A partnership or limited partnership may become a limited liability partnership pursuant to this section.
A.R.S. § 29-1101(A).
Moreover, both Arizona LLPs and LLLPs allow for multiple general partners that have limited liability and multiple limited partners that have limited liability.
Taxation
Both LLPs and LLLPs are taxed under Subchapter K of the Internal Revenue Code (IRC) meaning that the entities themselves are not subject to taxation, only the partners. This is in contrast to corporations taxed under Subchapter C of the IRC in which the entities and the shareholders are subject to taxation.
In the end, the difference between an LLP and an LLLP is the type of entity a partnership was before electing limited liability for the general partners.
This brief overview of some important considerations associated with limited liability partnerships and limited liability limited partnerships in Arizona is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.
